I want to clear up something today.
It’s been the most highly contested issue in our financial lives in recent years.
And America hired a new Administration and Congress to address the issue.
It’s inflation.
Decades high inflation has been an issue you’ve faced, but not by choice.
The current bout of inflation, which ended over a year ago, was an output of the liquidity that was pushed into our financial system, and your financial life, to save us all from the pandemic-induced recession.
But while inflation was dying, the drums of it began again with the men and women who lined up in 2023 to take on President Trump to become the Republican Presidential Nominee.
A major selling point being each candidate’s policy to cool inflation.
As someone who keeps a keen eye on the markets and economy, I couldn’t help but wonder why they kept talking about this issue when inflation was clearly beaten.
Check this chart out:
Now, my beautiful Kindergarten daughter could point out the peak of inflation and how it’s below the five-year average.
But as 2023 turned 2024, the politicians kept talking about it while it fell.
Again, check the chart above ⬆️
Then, the Election…
As tens of millions of Americans did on election night, I watched the election. During the lulls in the vote count, the networks aired live interviews with ordinary men and women discussing their experience as Americans and what they cared about as they voted.
Many of those interviewees talked about inflation.
I thought, “People, inflation is back to normal. Why are we talking about this?!”
But here’s the truth: the problem isn’t inflation.
The problem is prices.
High prices and their psychological and physical effects.
Prices for almost everything are high.
It’s downright depressing to shop for anything today if you recall what those things cost five years ago.
- Want a new SUV for your family of 5? That’ll cost you $75k.
- Want to take your family to McDonald’s? That’ll be $30.
- Want to send your kid to your Alma Mater? That’s $100,000, minimum.
- Want a new home? That’ll be 6 times your average salary.
Yet, inflation is dead.
Congrats to the Fed for killing it.
But prices?
Those are high.
Politicians hammered this point because high prices hammer people.
Here’s another chart.
The Grocery Store Index tracks what Grocery Stores pay for their products before selling them to us.
There’s been a 35% increase in the past fives years.
And just for kicks and jolly’s here’s the two previous charts put together.
This chart paints a picture of what’s going on.
Inflation is average, yet prices are high, with no signs of retreating.
So what does this all mean then?
Where do we go from here?
At the highest level, I don’t know.
What I can tell you, though, is where inflation has sneakily been hiding, and it is glaringly apparent when I tell you.
Asset prices.
The price of assets has been inflating rapidly since the early 2010s.
Since 2020, the prices of assets have inflated to record levels, while prices of grocery bills have exploded.
For the fortunate people who own stocks and real estate (like many of you here), you’ve profited handsomely.
And beat inflation.
Here’s my ultimate way to beat high prices: owning assets.
Yes, I want to grow my income to cover rising prices.
Yes, I want Bacon’s prices to go down.
But more than that, I want the tool that kills inflation to be by my side in every economic, social, or political cycle.
That tool is high quality assets.
If the what are quality assets that beat inflation, then the how is this:
Doing whatever it takes to acquire inflation-beating assets, then hang on to them for dear life.
What I can assure you is the politicians will screw it up.
They’ve already screwed it up and will most likely keep on doing that.
I don’t blame them either. It’s almost impossible to do what they do (steering history’s largest superpower in the most populated, connected world ever).
I was pleasantly surprised by the civility of this year’s vice presidential debate, but I laughed out loud when candidates discussed how they would lower home prices.
They both had half-baked, half-truth responses.
Politicians are not going to solve housing prices at large across the US.
They can help but not solve.
Here’s the facts, though: both asset prices and the prices of groceries, clothes, cars, etc., have all gone up substantially at the same time over the past five years.
Here’s a chart of the US inflation rate over the past 5 years and a $10,000 investment in the S&P 500.
Stuff is more expensive, and the $10k investment would be worth almost $20k.
To wrap this up and help you out.
Prices are likely to be higher while inflation hovers around its long-term average.
But I also know that historically, assets like real estate and stocks have been incredible hedges against the damage of inflation.
As the world enters the new dawn of AI, it’s never been a better time to own assets—even better, to own the assets that own the robots.
Since I don’t have a crystal ball in my back pocket, I’ll let these charts speak for themselves.
Fidelity just released research a few months back, and the gist is that most Americans don’t feel wealthy, no matter their income or asset level.
The key word to hone in on: feel.
Much of this edition can be boiled down to people not feeling in control of their financial lives because of something that happened to them that they could control (inflation in everything they buy).
It’s painful.
One of the best tools for combating this feeling is to focus on acquiring a portfolio of assets that physically help you beat inflation.
The S&P500 is up 25% this year.
Run-of-the-mill high-yield bond funds are up 6.5-8%.
Those returns are much higher than inflation.
This is my mission, the Fjell team’s, and our mission for clients:
Owning great assets to combat the flaming arrows of uncertainty.
If you want to know how your portfolio is set up to fight high prices and inflation, book a Portfolio Review call with us.
